States With Scariest Death Taxes -- Estate Taxes, Inheritance Taxes

Federal estate taxes are no longer a problem for all but the
extremely wealthy. In 2015, as much as $5.43 million in assets
will be exempt from federal estate taxes--double that for a
married couple.

However, state estate taxes, which kick in for estates valued
at only $1 million or less in several states, could take a big
bite out of your legacy. Your home and retirement accounts will
be counted when your estate is valued for tax purposes, and
proceeds from your life insurance could be counted, too,
depending on how the policy is owned and who gets the money.

Sixteen states and the District of Columbia impose an estate
tax, and seven states impose an inheritance tax, which can force
certain heirs to give up a portion of their inheritance. The good
news is that a growing number of states are increasing their
estate-tax exemptions in an effort to dissuade well-off retirees
from moving to more tax-friendly jurisdictions. In 2015, four
states will increase their estate-tax exemption, and more relief
is scheduled over the next five years.

Here's a look at the states that are the least friendly places
to die.

1. New Jersey

Exemption level before state estate tax kicks in: $675,000

State estate tax rates: 4.8% - 16% (on estates valued at about
$10 million or more)

Exempt from estate tax: Spouses, civil union partners

Inheritance tax: Yes

New Jersey lawmakers have proposed making the Garden State's
estate tax less onerous, but nothing has happened yet. New Jersey
remains one of only two states (along with Maryland) to impose
both estate and inheritance taxes. And New Jersey's exemption
level at which estate taxes kick in is, by far, the lowest in the
country.

Parents, grandparents, descendants, children and their
descendants, spouses, civil union partners, domestic partners and
charities are exempt from the state's inheritance tax. There is
also a $25,000 per-person exemption for siblings, sons-in-law and
daughters-in-law. But other heirs are taxed at graduated rates
ranging from 11% to 16% on inheritances valued at $500 or
more.

New Jersey also "looks back" to gifts made to non-exempt
individuals within three years prior to death. Such gifts are
also subject to the inheritance tax unless beneficiaries can
prove that the gifts weren't made "in contemplation of
death."

The Beaver State moves up to the No. 2 spot from No. 4 last
year because it has resisted the trend to increase its estate-tax
exemption (or even adjust it for inflation). The state's tax
still kicks in for estates valued at as little as $1 million. In
addition, it also imposes a relatively high 10% tax rate on those
smaller estates.

4. Minnesota

The North Star State will also gradually increase its
estate-tax exemption by $200,000 a year until 2018, when it will
reach $2 million. Even then, though, there will be a significant
distance between the state's estate-tax threshold and the federal
exemption.

Not only does Minnesota have a low exemption level for
estates, but when calculating the value of your estate, Minnesota
looks back to include taxable gifts made within three years prior
to death. Good news: In March 2014, Minnesota repealed a 10% gift
tax enacted in 2013 before anyone actually had to pay it.

5. Rhode Island

Exemption level before state estate tax kicks in: $921,655 in
2014; $1.5 million in 2015.

The Free State is gradually becoming a more tax-friendly place
to die. Its estate-tax exemption will increase every year until
2019, when it will match the federal exemption. For that reason,
it moves down one spot on our list.

Spouses, children, daughters- and sons-in-law, parents,
grandparents and siblings are exempt from the state's inheritance
tax. But other heirs must pay a 10% tax on bequeathed property
valued at $1,000 or more. Gifts made within two years prior to
death may also be subject to the tax.

7. Connecticut

Exemption level before state estate tax kicks in: $2
million

State estate tax rates: 7.2% - 12% (on estates valued at about
$10 million or more)

Exempt from estate tax: Spouses, civil union partners

Inheritance tax: No

The Constitution State is the only state with a state gift tax
on assets you give away while alive. You'll have to file
Connecticut gift tax returns every year to identify any such
gifts, but taxes are due (at rates ranging from 7.2% to 12%) only
when the aggregate value of gifts made to any individual since
2005 exceeds $2 million.

9. Washington

The Evergreen State's estate tax rates are unusually high. But
Washington offers an additional $2.5 million deduction for
family-owned businesses valued at less than $6 million. Its
estate tax exemption is indexed to inflation.

10 States With the Scariest Death Taxes-- 2013 Rankings

Kiplinger updates these rankings annually. Above is our 2013
list of the states with the scariest death taxes. The list is
based on Kiplinger's analysis of state tax laws; information is
gathered from state tax department Web sites, CCH and the Tax
Foundation.